Reith Ltd owns all of the 10 million issued ordinary shares of Beasley Ltd.Beasley Ltd declared and paid a dividend of $0.80 per share during the 20X1 financial year out of profits it earned during 1999.Reith Ltd acquired Beasley Ltd in 20X0.What is the journal entry recorded by Reith Ltd in its own accounts for the 20X1 financial year?
A)$\begin{array}{llcc}
\text { Accounts } & \text { Debit \$000 } & \text {Credit\$000 } \
\text { Bank } &8000\
\text { Dividend Revenue } &&8000\
\end{array}$

B)$\begin{array}{llcc}
\text { Accounts } & \text { Debit \$000 } & \text {Credit\$000 } \
\text { Bank } &8000\
\text { Investment in Beasley Ltd} &&8000\
\end{array}$

C)$\begin{array}{llcc}
\text { Accounts } & \text { Debit \$000 } & \text {Credit\$000 } \
\text { Investment in Beasley Ltd } &8000\
\text {Bank } &&8000\
\end{array}$

D)$\begin{array}{llcc}
\text { Accounts } & \text { Debit \$000 } & \text {Credit\$000 } \
\text { Investment in Beasley Ltd } &8000\
\text { Retained Profits } &&8000\
\end{array}$

Question

Reith Ltd owns all of the 10 million issued ordinary shares of Beasley Ltd.Beasley Ltd declared and paid a dividend of $0.80 per share during the 20X1 financial year out of profits it earned during 1999.Reith Ltd acquired Beasley Ltd in 20X0.What is the journal entry recorded by Reith Ltd in its own accounts for the 20X1 financial year?
A)$\begin{array}{llcc}
  \text { Accounts } & \text { Debit \$000 } & \text {Credit\$000  }   \
 \text {   Bank } &8000\
 \text { Dividend Revenue } &&8000\
\end{array}$

B)$\begin{array}{llcc}
  \text { Accounts } & \text { Debit \$000 } & \text {Credit\$000  }   \
 \text {   Bank } &8000\
 \text { Investment in Beasley Ltd} &&8000\
\end{array}$

C)$\begin{array}{llcc}
  \text { Accounts } & \text { Debit \$000 } & \text {Credit\$000  }   \
 \text {  Investment in Beasley Ltd } &8000\
 \text {Bank  } &&8000\
\end{array}$

D)$\begin{array}{llcc}
  \text { Accounts } & \text { Debit \$000 } & \text {Credit\$000  }   \
 \text {  Investment in Beasley Ltd } &8000\
 \text { Retained Profits } &&8000\
\end{array}$

Quizplus · Accepted Answer

When a parent company receives a dividend from a subsidiary, the correct accounting treatment is to reduce the investment account by the amount of the dividend received, reflecting the distribution of profits rather than recognizing it as dividend income. This prevents double counting of income within the consolidated financial statements.

Reith Ltd Owns All of the 10 Million Issued Ordinary